“It’s important to make sure that we’re not painted with the same brush, that others aren’t painted with the same brush,” said John Arenas, the CEO of coworking provider Serendipity Labs. “If you’re not funded by magic money, you have to make money to stay in it. That’s what the rest of us do.”

Corporate offices nationwide look more like WeWorks, and many office developers seek out providers to manage a flexible office space in their buildings, rather than lease one. It has also helped spawn a boom in smaller coworking providers.

While WeWork hopes the power of its brand and its emphasis on community can help justify its valuation, its message has spread to the masses.

“WeWork has been great for the sector overall, there is a broad awareness of flexible workspace now here in the U.S. and globally,” said Charles Robinson, the senior vice president of the U.S. for Servcorp, an Australian coworking provider.

In that way, Wednesday’s initial public offering was hailed as a landmark for WeWork's smaller rivals, which are also looking to establish long-term legitimacy.

“It’s going to help people think about this industry, digest numbers and trends in the industry, which is obviously something I’m personally really excited about … And they are going to come to their own conclusions about what the strengths are, where the pain points or weakness or risk are — they are going to come to a conclusion on the underlying business model.”

And, Hodari was quick to point out, Industrious’ model is different than WeWork’s.

“Obviously, we at Industrious feel strongly that the management, landlord-partnership is a much more sustainable model than the lease-based model that WeWork pursues,” he said. "It’s an opportunity for analysts and for others to come to their own conclusions about the viability, sustainability and health of the lease-based model.”

The Global Workspace Association, a coworking industry trade group, is hosting a call Monday, multiple sources confirmed to Bisnow, with executives from providers like Novel Coworking, Workville and Utah-based Kiln, as well as experts from firms like CBRE and Colliers.

“It’s always been a fragmented industry, [the operators] are trying to understand what this might mean for them,” said Arenas, who was invited to participate in the call. “They’re trying to figure out how bad is it? How bad is it going to be?”

Courtesy of Industrious

The inside of Industrious' coworking space in Midtown Atlanta

Health Risks

When the IPO came to light via a Securities and Exchange Commission filing that starts the clock for when The We Company will attempt to raise a $1B initial public offering, it didn’t so much stun the market as reaffirm what most have long believed: The We Company’s $47B valuation is based on hope, and it is burning through cash at a rate most experts don’t believe is sustainable.

The company has $47B in committed lease obligations and $4B in committed rents, a red flag to stock analysts. Fitch Ratings downgraded WeWork’s bonds three levels to a B- on Wednesday, The Real Deal reported.

“You look at the cash, and that’s $2.5B of cash they say they have, of which $1.25B is restricted, they can’t touch it. It’s theirs, but it’s not theirs to use,” Arenas said. “Now you’ve got a burn rate of $1.3B the last six months. They only have six months of money.”

WeWork’s losses are notable — it expects to lose close to $4B over a 24-month period, and expects losses could increase relative to revenue. Its established business model of taking long-term leases for its locations, spending money to build and market them, then lease them out on short-term deals has drawn increased skepticism the closer analysts look.

While WeWork has brought in more than $1.5B of revenue so far this year, the vast majority of its locations operate on long-term leases with landlords, but the majority of its members are on short-term deals, many only month to month.

“The losses are daunting. The operating costs are high,” said Santosh Rao, head of research and partner at Manhattan Venture Partners, a lender focused on pre-IPO firms. “It’s a risky model to begin with ... Things have to work perfectly for them to really be [a] sustainable and profitable long-term company.”

WeWork attempted in its prospectus to reassure investors that while it is at risk for mass membership losses in a downturn, it has an economic advantage in a recession environment over traditional office leases.

“WeWork is a total mismatch of assets and liabilities, with long leases and short membership leases,” CenterSquare analyst Alex Snyder said. “That works as long as the market goes up, but if it goes down, boom.”

Google Maps

88 University Place in Manhattan, a WeWork building entirely subleased to IBM

Coworking vs. WeWork

WeWork has opened huge locations and partnered with some of the world’s biggest companies. It opens larger coworking spaces than any of its competitors — its newest location in Brooklyn is more than 200K SF — and some of its building-wide deals are leased out to single companies, like IBM, Amazon and Liberty Mutual.

“Renting out an entire building to IBM isn’t coworking. That’s naked lease arbitrage,” Arenas said. “If 40% of their business is enterprise, to them that’s full floors and full buildings, which is the riskiest kind of thing you can do.”

It has used that strategy to fuel its growth, but those locations carry extra financial risk, WeWork acknowledged in the prospectus, and those locations don’t fall into the traditional definition of coworking, said Arenas, a former Regus senior executive who founded Serendipity Labs in 2012.

Regus’ name comes up a lot these days in discussions around WeWork. The leader in managed office space experienced heady growth in the run-up to its own IPO in 2000, which preceded its 2003 bankruptcy after the dot-com bubble burst.

Regus, now called IWG, has grown with the global economy, and turns a profit while valued significantly lower than WeWork by the public markets. IWG’s WeWork-like coworking brand, Spaces, has more than 30 locations open in the U.S.

Courtesy: Serendipity Labs

Serendipity Labs CEO John Arenas

“[Regus] grew very quickly, taking down lots of commitments in the run-up to an IPO, so you have to fill space, so you compete directly with landlords at low margin and short terms,” Arenas said. “That’s a very big risk, and that’s not coworking, that’s just re-renting office space.”

Sarah Travers is the CEO of Workbar, a coworking business with a handful of spaces around Boston. Workbar was founded in in 2009, a year before Adam Neumann and Miguel McKelvey launched the first WeWork in Manhattan.

“WeWork has ushered in this generation of imitators,” said Travers, a 15-year veteran of IWG. “IWG has had this business model for 15 years, WeWork has made the sales job of a lot of IWG employees easier.”

Workbar has grown slowly, sticking to Boston and keeping the focus on smaller groups of employees. Her company just signed a Fortune 500 company to its Downtown Boston location, and “it’s surrounded by WeWork on all sides.”

“Companies are starting to educate themselves on who is in the market and what’s going to drive value for the solution they pick,” Travers said. “Workbar has 80% open space and 20% private space, and that’s a vastly different experience going to a WeWork.”

Regus’ IPO bust cast a decade’s worth of doubt on flexible office space, before WeWork took hold of the concurrent rises of the sharing economy and economic recovery. Those fears are starting to bubble up again.

“If WeWork were to head south significantly, that wouldn’t be great for other players,” Robinson said. “When Regus went bust, it put a taint on the industry.”

Whereas Regus was a victim of a dot-com boom — an era of soaring tech valuations and corporate spending that rose fast and crashed hard — coworking’s rise in the wake of the Great Recession has meant a longer, steadier road, with more space for competitors to establish themselves.

Places like Serendipity Labs, Knotel, Spaces, Industrious, Workbar and Breather, which operates on-demand offices and meeting rooms, don’t have WeWork’s scale, but they have shown that there is appetite for different types and definitions of coworking or flexible offices.

“We're very early in this evolution of flexible workspace,” Breather CEO Bryan Murphy said. “Other participants in the industry are working to carve out their space.

“Flexible workspace is a product people want to buy. One of the biggest wastes of capital are the upfront costs of getting an office, and then you're locked into it. It's a very antiquated as a way of doing business.”

“It will be like the hotel industry or airlines, where it's so massive, it will be impossible for one company to dominate,” Murphy said. “This [IPO] can validate flexible workspace as a product and as an industry."

Because of SoftBank’s $10B investment in WeWork, it has operated like no other player in the market, chasing scale and market share above stability.

“The difference of what one sees in the approach of trying to blitz scale, get big and figure it out later is not something anybody else in the industry can really afford to do,” Serendipity Labs’ Arenas said. “From the industry’s point of view, they’re growing in a way that’s undisciplined. Maybe not unlimited undisciplined capital at the other end is good for us.”

Other flexible office space providers are focusing on their differences with WeWork, rather than their similarities. Industrious has struck up management agreements in one-off building deals and nationwide partnerships. Serendipity Labs owns and franchises locations, Knotel offers flexible offices, not coworking, and companies like Workbar and MakeOffices have established regional footholds.

“WeWork and coworking in general is not a one-size-fits-all model,” Travers said. “I know there are a lot of different solutions out there. [Customers] are asking, 'What does Workbar provide that WeWork doesn’t?' And we think we’ll win against them.”

CORRECTION, AUG. 20, 12:35 P.M. ET:Sarah Travers is the CEO of Workbar. It was founded by Bill Jacobson, who is still a board member. A previous version of this story misstated Travers' role. This story has been updated.